With the possible exception of one: United Airlines. Of all the major carriers, this summer had to be better for the Chicago-based airline than 2000. Last year United, then the country's largest airline, suffered with historically high delays and cancellations largely because the pilots and the airline's management couldn't agree on a contract. Finally, the flyboys took home the best package in the business.
Then United's executives, feeling pretty chipper themselves, decided they could handle more work, so United and US Airways, the nation's sixth largest carrier, announced plans to merge by Aug. 1, 2001 for a cool $4.3 billion. Conventional thinking in the industry thought the deal — which is essentially the better-run Untied gobbling up the poorly-run US Airways — would cruise through and United would be in position to dominate the world (or at least the U.S.) by the time summer vacation plans were being made.
No such luck. The merger has stalled in part because of increasing consumer and political opposition by folks who aren't quite sure that one airline controlling a quarter of all flights in such a good idea. The General Accounting Office weighed in and published the ugly, possibly anti-competitive details of how the new combined carrier could monopolize the skies in many cities and on certain routes. Reports also said that the Department of Justice anti-trust division, which has to approve the merger for it to go through, had serious concerns about the deal as structured. Several state attorney generals were also taking a close look at the merger plan.
Yesterday things got worse. Wall Street and Main street weighed in: and the news wasn't good. Credit rating agency Moody's Investor's Service downgraded United's senior debt rating to 'junk' — a hit that will not only force United investors who are forbidden to own junk bonds to dump the stock but also raise borrowing costs for the company. And just a few hours later, the Attorney General of Minnesota, Mike Hatch, announced he would fight the United-US Airways merger even before it's complete. Hatch said, on behalf of the state, he would sue the airlines if the merger is approved by regulators. "We should not be permitting that type of concentration in such an important industry," said Hatch.
Yet it's a bad bet to write the merger off completely. United is a savvy airline that can adapt (the last bit of evidence being the formation of a business jet unit aimed at its most valuable passengers). And United's executives have no doubt closely read the decision last month by a federal judge that threw out the first-ever Department of Justice suit against a major airline for predatory practices — against United rival American Airlines for unfairly driving competitors out of business.
That ruling means the big airlines have new license to throw their weight around, and the bigger the airline, the heavier the weight. United, which is now the second-largest carrier (American's purchase of TWA made it top dog), could make whatever concessions the DOJ demands to make the merger fly, and then — considering the safety net of the judge's ruling for American — swoop back in after the deal closes and drive smaller rivals out with the kind of pricing hardball American has now officially gotten away with.
And don't think they won't do it — United doesn't want two Summer of Discontents, not in a row.